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U.S.-listed shares of Cronos Group, Tilray Brands and Canopy
Growth rose between 14.9% and 67.7%, while ETF AdvisorShares
Pure US Cannabis soared 24.8%.
Canada-listed Green Thumb Industries and Trulieve Cannabis were
also up 26.6% and 37.3%, respectively.
Cannabis firms are taxed under section 280E as a part of
Schedule I drug, which disallows them from deducting normal
business expenses from their profit, increasing tax burden for
the companies. Reclassifying to Schedule III would eliminate
this tax, helping towards their profitability.
"This would result in meaningful cash benefits for operators and
we estimate a cash benefit upwards of $150 mln," Alliance Global
Partners analyst Aaron Grey said in a note.
The proposal, which, if finalized, could potentially be the most
significant shift in federal cannabis policy in 40 years, is
being sent to the White House Office of Management and Budget
for review and to finalize the rule-making process, sources told
Reuters.
The reclassification will not legalize marijuana outright for
recreational use.
Shares of U.S.-listed marijuana companies had similarly soared
in 2019 after Canada legalized recreational marijuana use, but
the rally collapsed the following year as underwhelming revenue
numbers failed to justify their sky-high valuations.
(Reporting by Tanay Dhumal in Bengaluru; Editing by Tasim Zahid
and Anil D'Silva)
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